Newport’s median price appreciation lagged behind the national and state average with a price increase of only 2.1%. That said, Newport dwarfed the rest of the state with a whopping 25.9% increase in the number of single family homes sold since 2011.

Multi Families – Newport, RI

Newport sales volume is up 51.8%! As mentioned in my blog from last year, we’ve certainly made a turn and volume is the indicator. The increase in volume coupled with slower price appreciation shows just how strong and healthy Newport’s market is by maintaining steady prices while still increasing volume.

The Newport Multi Family market has boomed this year with investors seeking higher yields on their money. Volume is up only 5.9% for this year, but since 2011, volume has increased 63.3%. Median sale prices for Multi families went through the roof this year – up 23.4%! It looks like investors are willing to stomach a smaller return on their investment to take advantage of cheap financing and inexpensive inventory.

Condominiums – Newport, RI

Newport Condominiums have been on a steady increase with a price appreciation of 16% and volume is up 12.2%. This trend suggests strong improvement in the second home market – great news for home owners here in Newport!

What to expect for 2014

While inventory was the real estate catch phrase in 2012 and 2013, interest rates will be the driving factor in 2014. With the FED’s tapering of Quantitative Easing starting in January, interest rates will climb steadily in the near term. This rise in rates will slow down national price appreciation but not completely stop it. I feel volume will continue to rise as people take advantage of the still historically low rates. While 2014 may be a plateau, it will still be an excellent time to buy, and all indications point to another great year for RI real estate! If you’d like to take advantage of market conditions now, call or email me or any one of our highly qualified agents.

The Government Shutdown may affect Real Estate over the coming weeks. Perhaps not market values, but existing transactions, and buyers looking to make offers. Being a Realtor, I’m certainly not furloughed and neither are most other private sector jobs. But in a community like Newport RI, it may end up affecting us more directly than we’d like.

Here in Newport County, the Department of Defense is a major industry. Many local citizens may see a smaller paycheck this week, and if it continues, no paycheck. This comes out to less spending at restaurants, stores, gas stations and even some people putting buying a house on hold. This will hit our local economy minimally, but as everyday marches on the more we’ll see it in our day-to-day lives.

How it Affects Purchasing a Home:

It may delay closings for home owners or buyers currently under contract. With as much as 90% of the FHA furloughed, and 2/3rds of the IRS not coming to work, much of our mortgages written in the US will have to be postponed. Every FHA loan needs to be approved by the Federal Housing Administration. Everyone acquiring a loan needs to provide tax documents to their lender. This time a year this typically is not much of an issue, but if you’ve asked for extensions, the wait could be much longer than usual. These are all taken for granted in our day-to-day activity of selling real estate, but without them, we could road blocked for some time.

How it Affects the Marketplace:

A major reason of the shutdown is the “Raising of the Debt Ceiling”, the US’s ability to increase our borrowing amount to continue functioning as a country. If we can’t increase our borrowing amount, we’ll have to cut spending or we will default on our debt obligations. Not unlike you and me with making credit card payments, if we miss a payment, our rates go up. Same goes for the United States. If interest rates go up, this will cause mortgage rates to rise as well. In short; higher rates mean less buying power.

What To Do:

If you’re under contract to buy a home contact your mortgage broker/lender. Make sure he has everything, his underwriter doesn’t expect any hiccups and any documents needing to be OK’d by FHA are already stamped. If you need anything from the IRS or FHA anticipate delays, ask for extensions now so there are no surprises. Call your State Rep and explain to him how this gridlock has hit you personally. In short, everything will be OK as long as we’re prepared, but the longer this shutdown goes one, the more it will effect us all.

Fixer-uppers are not for everyone, but this little gem in Middletown is a Cinderella story worth sharing:

It started with a closing on a sad little house in need of major TLC. It ended 2 months later with a 7-day listing, a full price offer and an exhausted, but happy Seller.

Time and Effort are the life blood of flips. They must look brand new. When they do, people buy them. It’s that simple. If you plan to do it yourself, get ready for some aches and pains. If you do it right, however, the rewards can be great.

Location is key for a successful flip. This one was on the Middletown Newport line near parks, restaurants and coffee shops. Once the location checked out, we calculated the cost of the work. After running the numbers we knew it could work for our Buyer, a serial do it your selfer who had the skills to do much of the work himself.

AFTER

So the moral of the story is if you’re not afraid of REALLY hard work, you have a knowledgeable agent to help you buy at the right price AND sell at the right price, you could have a happy ending too!

Everyday RI homebuyers ask, “Should I buy now, or should I wait for a better deal?”

These days my answer is decisive: “NOW is the time.”

Coming from a real estate broker, these words can seem like a sales pitch – a canned response suitable for any market. I am writing today to give you facts to back up my opinion. I hope, 10 years from now, someone who bought a house after reading this blog will thank me for pushing them over the edge. I imagine how happy they will be with a 3.5% mortgage on a low purchase price negotiated during one of the strongest buyers’ markets of our lifetime. Ten years down the road they will have significant equity in their home, and this will give them the freedom to buy other things, finance a college education or just live a little better. There is overwhelming evidence suggesting home prices and interest rates will rise soon, and fear and indesion now could cost you thousands down the road.

1. Interest rates are under 4%.

This fact never gets the attention it deserves. Rates are at a 65 year low. Yes, a 65 year low!!! Low rates reduce carrying costs more than most people realize, and that is why it’s on the top of my list. If rates jump from 3.5% to 4.5% it costs 13% more to borrow money. Even if prices don’t change much, you will still pay 13% more for borrowed money and that is significant.

2. Prices are as low as they’re going to get.

Although most experts believe last year was the bottom, prices are still 20-40% lower than they were at the height of the market and interest rates are 30% lower than they were in 2007. Home sales are picking up, prices are stabilizing and inventory is falling. Low inventory creates higher prices. That’s just the way it works.

3. It’s cheaper to buy than rent in most areas.

I have worked with handfuls of clients who never realized owning a home could be more affordable than renting one. I recently worked with a military family who wanted to rent a home for $2800. After taking a pencil to it, they discovered buying a home with 100% VA financing would cost $700 a month less than renting. They also got a much better home to live in. This shocked them and it does most buyers who take the time to examine both scenarios. This dynamic alleviates risk of losing a job and not being able to afford a mortgage and also the opportunity to keep the home in the future for cash flow and buy another property to live in. (See this excellent blog post on deciding whether to rent or buy.)

4. The stock market has recovered, but the real estate market has not.

The Dow is likely to reach an all time high this week rebounding strongly after one of the worst recessions in history, yet the real estate market is still lagging. This is why the smartest investors in the world are pouring money into this sector. One of Warren Buffet’s biggest investments last year was real estate and soon many more will follow his lead. As demand increases so will prices.

5. Inflation is here.

Inflation has already begun. It is reported that lumber prices have jumped in some segments by 30% due to a 20 – 25% increase in building starts nationwide. These costs directly affect the cost of buying a home. If it costs more to build or fix up, the builder must charge more for the same product, and we will start to feel those increases in 2013. Real estate is one of the best assets to hedge inflation, and you will see more and more people purchasing investment property and second homes in response to inflation. Again, increased demand means higher prices.

I hope this helps convince you that ”Now Is the Time!” This is not a sales pitch. It’s what I believe. If you or anyone you know wants to know how they can benefit from this 2013 market don’t hesitate to contact me or anyone of our knowledgeable Hogan Associates agents.

If the Real Estate catchphrase of 2012 was “interest rates” 2013 will be “inventory”. So far it’s been a fantastic and frustrating 2013 for us realtors here in Newport, and per the media, we’re not alone. Inventories nationally are at 13 year lows. As I mentioned in a blog post back in November, inventory levels were continuing to decrease, pointing towards a renewed seller’s market. Looking at charts here in Newport County the trend doesn’t seem to be changing.

These charts make me think back to my Economics Classes at Saint Anselm College with Professor Romps, specifically about supply, demand and the “invisible hand”. Prof. Romps was a 6’3” 280lb angry 65 year old man. It was impossible to fall asleep in his class even at 9am on Friday. In the end, he turned out to be one of my favorite teachers because of how entertaining and, ahem, “motivating” his lectures were. We were taught when supplies decrease, demand stays constant, prices increase. With this in mind, Real Estate is considered to be “inelastic”, meaning the invisible hand is slower to move pricing than say that of gasoline. Prices slow to respond to the low inventories, but overtime the change we’re all expecting will come to fruition.

We’re also experiencing an increase in demand with less conceived risk, more buyers and low mortgage rates. Coupled with increasingly low inventories, we’re seeing pricing start to increase, causing even stale inventory to go under contract. (Newport sales prices are up 7.8% from this time last year, volume is up 11.9% and distressed sales are down 66.7%)

With the lack of inventory and increase in demand, sellers will be allowed to be more liberal with their pricing. Over the next year or so, as long as demand stays consistent, we’ll continue to see prices climb.

Hopefully we can see inventories start to pick up. I have plenty of buyers that keep telling me “Jeff, we don’t see anything on the market, so we’ll wait until more inventory comes on.” So, to sellers out there reading this: Please list your house so I can sell it!

The ball at Time Square wasn’t the only thing that dropped last night. The US economy took a cliff dive thanks to our elected officials on Capital Hill. The so-called “fiscal cliff” has been looming for months. The Senate threw out a life line passing a Bill on New Year’s Day but the House must ratify the Bill before it is presented to The President.

So we’re not there yet, but here’s an outline from the current Bill explaining how it affects your real estate and what it means for 2013:

1. CAPITAL GAINS

-Capital Gains and dividends rose from 15% to 20% depending on your tax bracket. Please keep in mind, the exclusion of $250,000 for singles and $500,000 for married couples is still in place, so as long as you’ve owned your home for at least 2 years and your gains are less than the aforementioned amounts, this increase won’t affect your sale. Dividends for REITs, (Real Estate Investment Trusts), will be affected by the increase, potentially decreasing the value of large apartment complexes and office buildings.

2. DEBT RELIEF ACT

The Debt Relief Act has been extended for at least 1 year. This is a huge sigh of relief for sellers in the Short Sale process. If this act expired, short sellers would have to pay income tax on forgiven debt, further burdening already stressed families.

3. ESTATE TAX

The Estate Tax will also increase. Previously, the exemption was $5.125 million per person at a rate of 35% for any in excess. If we fell off the preverbal cliff, the exemption would drop to $1,000,000 and increase to a rate to 55%. Not good for a sizable number of families across the nation and especially here on the East Coast. With the bill passed early Tuesday morning, the exemption will be set to $5 million at a rate of 40%. Please keep in mind, this is only a bill and is not yet set into law.

4. DEDUCTIONS

Deductions have been capped for singles making more than $250,000 and couples making more than $300,000. If you fall into this bracket you’ll have a limit on the amount you can deduct on your taxes. This includes mortgage interest deductions, depreciation and other investment property deductions. This will not affect most American families but can affect people with jumbo loans as well as investors who have sizable loan interest to deduct and properties to depreciate.

5. INCOME TAXES

Income Taxes increase for earners of more than $450,000 for singles and $500,000 for couples. The increase will be from 35% to 39.6%. This could negatively affect higher end real estate by drying up a pool of potential buyers, but any affects would be minimal.

Please keep in mind, this situation is fluid. Discussions will be on going for at least the next few months. The “Sequester,” or automatic spending cuts going into place at the end of February, has not been addressed nor has a solution for the predicament the debt ceiling will impose… when we reach it… again…

I am about to make a bold statement about the Newport, RI real estate market – a statement that’s been made nearly every year since 2006. This time, however, the evidence is strong, sustained and hard to refute, so here it goes:

The decrease in the number of homes on the market (the dark line) from fall 2011 to fall 2012 is startling! Approximately 200 homes were on the market last fall versus 130 this fall! Down 35%. Take a look at this chart displaying 4 years of price vs. inventory data for Newport. (NOTE: A larger version of this chart, updated weekly, is always available here.)

Absorption Rate

The Absorption Rate is the number of months it would take to liquidate existing inventory at the current rate. If the number of months is greater than 6 it’s considered a buyer’s market, fewer than 6 a seller’s market. Last October Aquidneck Island had an absorption rate of 16.5 months. This October it was down to 9.5 months! This shows how quickly the market is moving towards equilibrium.

Active/Pending Rate

The A/P rate, or the ratio of pending listings to active listings, shows how quickly the marklet is moving over all. In Newport for October of 2011 it was 16%. This October? 25.6%. WOW. A jump of 10%! I am personally seeing this while scheduling showings. By the time the buyer emails me the listings and we go out for the tour itself, at least 1 house goes under contract! There is no more waiting around in this market.

Appreciation

It is great to see that the market has finally picked up, but what about price appreciation? Nationally the median prices of homes are up 11% from this time last year. Here in Newport, we’ve seen a median sales price jump of 10.4%. The market has actually turned a corner and we’re finally seeing it here at home.

Sales Volume

The number of sales over a 12 month period in Newport is up 20.6%. 2008 – 2011 saw 140-143 sales a year. This year we’ve had 170. Multi family activity is up even higher. Volume is up over 50% compared to 2011. 51 transactions vs 33 this time last year.

I’ve been seeing these improvements happen in my day to day activities representing buyers, but I had to really dig through the data before I could tell you with confidence that we have made the turn! After so many challenging years I’m excited to start helping my clients take advantage of this slowly (but surely) rising tide. If you’d like to discuss the changes underway and how they might affect your real estate choices, please call or email anytime.

As a Rhode Island real estate agent who has recently navigated both ends of FHA backed transactions, I can personally attest to the fact that FHA loans are making a strong comeback as a useful alternative for first-time home buyers and home buyers with less than perfect credit. My experience as of late has enlightened me to the fact that both industry peeps and consumers alike are often still in the dark about the FHA process and what it means to a sale. So, I’m here to offer an inside scoop.

Have a steady employment record (two years or more with the same employer is perfect).

Have no bankruptcies in the last two years.

Keep the mortgage payment at approximately 30% of their gross income or less.

3.) The FHA does not supply the loans, rather they insure them to protect the lenders. This program means less risk for lenders which creates low down payments for borrowers.

4.) Not all lenders deal with FHA mortgage loans. Before applying for a mortgage loan, applicants should always check first to make sure that the lender actually processes FHA loans. The lender should also be FHA-approved.

4.) The most popular FHA loan has a minimum cash investment requirement of 3.5% but permits 100% of the money needed at closing to be a gift from a relative, nonprofit organization or government agency.

5.) Shop rates when looking for a FHA mortgage. The rates are established by the lender, not the government, so they will vary. FHA loan rates are typically higher than conventional (nongovernment guaranteed) loan rates but shouldn’t be a lot higher unless you have credit problems.

Homeowners Considering FHA Backed Buyers:

1.) There is LESS risk involved with FHA borrowers because the FHA guarantees the loan, so the lender doesn’t take on a financial risk by extending credit.

2.) Agreeing to consider FHA backed buyers is a great way to generate additional interest and increase the pool of qualified buyers.

3.) Though all FHA mortgages require a home appraisal, they do not require a home inspection.

The FHA now allows what are called “as is” appraisals. These appraisals allow for minor property defects from wear and tear, for example. They also help sellers to keep mandatory repair costs lower as well. Such defects include minor items like leaky faucets and even missing handrails.

5.) Sellers with FHA-backed mortgages themselves who wish to sell their homes also have another option open to them, and that’s loan assumption. In other words, you could allow a prospective buyer to assume your loan as long as the lender feels he’s qualified.

Lastly, it is important for both homeowners and consumers to know there is a maximum borrowing limit for FHA backed loans. Currently, the cap on a single family in Rhode Island is $475,000.00.

The charts below provide a snapshot of Newport’s Single Family Real Estate market for the 6 months ending February 28, 2011. For those of you thinking about pricing your homes for spring, this is important information to consider. If you would like a similar report on your town, just give us a call.

Many factors enter into the decision to rent or buy a RI home including the anticipated rate of appreciation, anticipated rent increases, your tax bracket and how long you expect to stay. If you’re wrestling with this common real estate decision, take a look at this Rent vs Buy calculator. It’s one of the best ones out there because it rolls every possible permutation into a tidy little graph and a one sentence conclusion.

So plug in your numbers, and see what’s best for you. If it turns out that buying is the way to go… well, you know where to find me!